OECD Territorial Reviews: Milan, Italy
NOVEMBER 200P
6
olicy Brief
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
OECD Territorial Reviews:
Milan, Italy
Is Milan’s economic
Introduction
drive at risk?
Milan ranks among wealthy OECD metropolitan regions and is often identified
with the “Made in Italy” brand on the international arena, notably for fashion
How can Milan
and design. Once a successful industrial city, Milan has grown into the core
of a wider industrial metropolitan region that is home to more than 7 million
capitalise on its
people. Industrial activities still drive the region’s periphery while the centre
high value-added
of Milan is veering towards becoming a service platform for a significant share
functions?
of northern Italy. Milan’s historical skills endowment and its advantageous
geographic location could underpin its ambition to become a southern
How to maintain
European and Mediterranean capital, supplying advanced services and new
adequate public
technologies while remaining an international capital of fashion and design.
goods?
However, both external and internal challenges are putting strains on Milan’s
aspirations. On the external front, increasing global competition has revealed
Towards a Milan
the limits of Milan’s historical lead and the need to support the renewal of its
comparative advantages. On the internal front, public goods and services such
“metropolitan
as transportation have not kept pace with the continuous urban sprawl and
community”?
the widening commuting flows across the metropolitan region. This has led
to a deterioration of the region’s liveability, hampering the region’s buzz and
For further
capacity to attract knowledge workers.
information
Failure to accelerate the innovation process and to enhance the region’s
attractiveness could prove costly. Milan needs to capitalise on its advanced
For further reading
services and functions to bolster regional innovation dynamics and to fuel
national growth. Rapid metropolitan governance reforms will help design and
Where to contact us? implement a competitiveness strategy for the entire metropolitan region.
This Policy Brief looks at some of these challenges and at the possible solutions
put forward in a new OECD Territorial Review of Milan. ■
© OECD 2006
Policy Brief OECD TERRITORIAL REVIEWS: MILAN, ITALY
Is Milan’s economic
Milan has long enjoyed an outstanding industrial history and the aura of
a global city. Its past and present prosperity has been underpinned by a
drive at risk?
well-educated and relatively young labour market, a lively entrepreneurship
pool, and networks of dynamic small firms. Milan’s unemployment rate has
remained consistently below national average over the 1993-2003 period
(Figure 1). In the international arena, Milan stands out as a major commercial
partner in the European market through particularly dense linkages with
Germany and France (which accounted for almost 25% of its exports and more
than 40% of its imports in 2004). Milan also took in more than 40% of the
foreign direct investment (FDI) that came into Italy in 2004.
However, both external and internal challenges are putting a question mark
over Milan’s future competitiveness.
• On the external front, the upsurge of countries that combine both lower
labour costs and promising technological capacities increasingly demands
faster and more comprehensive innovation from Milanese firms. In this
respect, Milan has retained a relatively modest profile. First, Milan suffers
from the lack of a well-structured and coherent innovation policy for its
metropolitan area. Following the restructuring of large companies during the
1980-1990s, Milan’s productive fabric has been mostly composed of SMEs (the
average size of firms has dropped from a 100 index in 1981 to 73.5 in 2001),
which has contributed to delaying investment in research and development
(R&D) compared with European competitors. The Lombardy region where
Milan is situated spent consistently less than other leading European regions
such as Paris-Ile-de-France, London, Baden-Württemberg in Germany and
Lyon-Rhône-Alpes in France between 1998 and 2000. Second, SMEs have seen
few incentives to patent their innovations. Lombardy generated far fewer patent
registrations in high-technology sectors than the above-mentioned leading
European regions during the 1998-2002 period.
• On the internal front, continuous urban sprawl and widening commuting flows
have generated significant gridlocks across the enlarged metropolitan region.
The shortage of housing and the ensuing prohibitive costs in the core of Milan
pushed hordes of workers out into the periphery. These new commuters soon
turned to private vehicles to reach their workplace as the deficit of suburban
public transport infrastructure aggravated road congestion. Milan is now choking
under critical transport bottlenecks even though mobility determines the region’s
quality of life, attractiveness and competitiveness. Not only is Milan a heavily
polluted city, which affects its future capacity to attract workers and visitors,
but its unique potential to build a comprehensive engine for innovation with
regional, national and international spillovers may fade away.
Figure 1.
14
UNEMPLOYMENT RATES
12
IN MILAN AND ITALY
1993-2003, %
10
Italy
8
6
Milan
4
2
0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Source: Istat.
2 ■ © OECD 2006
Policy Brief OECD TERRITORIAL REVIEWS: MILAN, ITALY
Amid an already sluggish economic background, the Milan metropolitan region,
home to more than 7 million people, displays disappointing international
performances: it ranked only 30th out of 78 OECD metropolitan regions in terms
of gross domestic product (GDP) per capita in 2002 (Figure 2). Moreover, the
Figure 2.
San Francisco
Washington
GDP PER CAPITA IN
Boston
78 OECD METROPOLITAN
Seattle
Minneapolis
REGIONS (2002)
New York
Denver
Unit: USD PPP
Philadelphia
Dal as
Atlanta
Houston
San Diego
London
Chicago
Los Angeles
Detroit
Baltimore
Paris
Cleveland
Portland
St. Louis
Phoenix
Dublin
Pittsburgh
Tampa Bay
Vienna
Miami
Stockholm
Stuttgart
Milan
Lyon
Munich
Oslo
Sydney
Brussels
Toronto
OECD AVERAGE
Helsinki
Frankfurt
Copenhagen
Zurich
Rome
Randstad-Hol and
Melbourne
Vancouver
Turin
Auckland
Hamburg
Tokyo
Montreal
Madrid
Aichi
Birmingham
Leeds
Rhine-Ruhr
Lisbon
Osaka
Manchester
Barcelona
Prague
Lil e
Budapest
Warsow
Fukuoka
Valencia
Busan
Berlin
Athens
Seoul
Monterrey
Naples
Mexico City
Guadalajara
Puebla
Daegu
Krakow
Istanbul
Izmir
Ankara
0
10 000
20 000
30 000
40 000
50 000
60 000
70 000
Source: OECD Metropolitan Database.
© OECD 2006 ■ 3
Policy Brief OECD TERRITORIAL REVIEWS: MILAN, ITALY
region’s capacity to step up the pace appears unclear as its labour productivity
growth has been negative over the 1999-2002 period, in contrast with many
European regions including Helsinki, Copenhagen, Frankfurt and Lyon (Figure 3).
Milan seems to have lost part of the historical drive it had built on past
investments. Therefore, it may fall behind other European regional capitals
in the long term if it fails to meet its challenges fully and rapidly enough. If
Milan is to be upgraded into a creative service hub interwoven with a vibrant
industrial fabric, rapid action will be required to: (i) bolster its innovation
dynamics and attractiveness; and (ii) support the reform process via more
inclusive governance mechanisms. ■
How can Milan
Policies to better exploit and diffuse Milan’s advanced functions could give a
capitalise on its
fresh impetus to the regional innovation dynamics and generate important
spillovers at the national level. Few areas in OECD countries are able to
high value-added
replicate Milan’s well-balanced production framework, for example. The Milan
functions?
metropolitan region’s industrial fabric is both specialised and diversified, which
has helped to compensate for the negative effect of sectoral crises. Several
networks of specialised and complementary SMEs excel in light industries such
Figure 3.
Prague
Krakow
AVERAGE ANNUAL
Budapest
LABOUR PRODUCTIVITY
Busan
GROWTH IN 38 OECD
Seoul
METROPOLITAN REGIONS
Dublin
(1999-2002)
Vienna
Unit: %
Izmir
Stuttgart
Ankara
Helsinki
Istanbul
Daegu
Hamburg
Brussels
Osaka
Copenhagen
Paris
Munich
Fukuoka
Tokyo
Athens
Berlin
Aichi
Frankfurt
Lyon
Milan
Oslo
Rhein-Ruhr
Turin
Lil e
Rome
Naples
Barcelona
Randstad
Stockholm
Valencia
Madrid
-4
-2
0
2
4
6
8
10
12
%
Source: OECD Metropolitan Database.
4 ■ © OECD 2006
Policy Brief OECD TERRITORIAL REVIEWS: MILAN, ITALY
as furniture, metal engineering and electric equipment, as well as mechanics.
At the same time, the core area of Milan hosts clusters of knowledge-intensive
activities such as ICT and biotechnology and fulfils high value-added functions
that shape various phases of a product’s life cycle and generate spillovers into
multiple supply chains. Milan could renew itself as a strategic powerhouse
for a large part of Italy and beyond by permanently upgrading and refining
its creative brainpower. This challenge is illustrated below along three axes:
business services, breakthrough innovation activities, and internationally
visible assets.
• Business services could be better exploited and upgraded, as innovation
not only implies product and process advancement but also organisational
improvements. This task is particular relevant in Italy where SMEs produce
quality items but may lack the capacity to enhance sophisticated skills. The
core area of Milan already generates services that may help improve the
abilities of SMEs: industrial design thanks to the agglomeration of highly skilled
designers; financial services with the headquarters of the largest Italian banks;
communication services using marketing and advertising companies, as well
as the high concentration of the media industry; promotion and sales services
based on one of the world’s most competitive exhibition and fair systems
with the Rho-Pero new fair built in 2005. However, such services often remain
under-diffused. For example, although Milan has the largest academic system
after Rome and some of the most specialised universities in Italy, the impact
on the regional economy has remained disappointing. Universities perceive
very few incentives to collaborate, they generate modest spin-offs and they
barely interact with SMEs even though the latter constitute the bulk of Milan’s
production framework. The lack of interaction between firms, service providers
and training agencies calls for the creation of brokering institutions between
suppliers and users of knowledge, not only to help match complementary
actors but also to induct mechanisms to trigger knowledge spillovers. Further,
mechanisms to ensure permanent connections among these brokering
institutions and constant upgrades of available services could help Milan
progress into a strategic pole.
• Measures to build a market for breakthrough innovation could pave the way for
future sources of growth. Breakthrough innovation, which is mostly generated
in public and private research centres as well as in universities, needs to be
diffused with public support in order to fuel the regional economy and to
address a market failure. On the one hand, some firms are unable to express
solvable demand for innovation because they are often simply not aware of
available innovation. On the other hand, research institutions and universities
lack incentives to collaborate with small firms, either due to their prevailing
interests in research activities rather than in the diffusion of technology, or due
to the higher transaction costs in dealing with small (and often micro) firms.
Therefore, innovation policy should not only support R&D investment but
also the diffusion of innovation throughout the economy and closer linkages
between firms, research institutions and universities. Existing structures,
notably the Province’s Polo di Via Soderini, the Chamber of Commerce’s Palazzo
dell’Innovazione, and the existing technological centres, offer promising
potential as innovation brokers if they can be connected with each other
through a comprehensive strategy. A decisive test for Milan’s innovation system
will come in high-tech activities such as biotechnology, which is supported
by a well-developed local healthcare sector but must contend with powerful
European competitors.
• Milan’s advanced activities that enjoy the highest international visibility should
remain a safe “brand” on the volatile global market. Some of the most salient
examples of such activities are fashion (Milan accounted for more than half
© OECD 2006 ■ 5
Policy Brief OECD TERRITORIAL REVIEWS: MILAN, ITALY
of Italian turnover in 2003 and the Milano Collezioni fashion fair has enjoyed
constant success) and design (Milan breeds top-class designers and architects).
Regarding fashion, the gap between world-renowned brands and less eminent
talents should be addressed carefully. Public policies could also reinforce
the synergy effects across the fashion supply chain by further facilitating
inspiring linkages between stylists and manufacturing SMEs. As for design,
Milan has a historical advantage thanks to strong linkages between design and
manufacturing firms, but this effect could run out and needs to be rebuilt. ■
How to maintain
In the long run, Milan’s innovation capacity could be further depleted as the
adequate public
metropolitan area could become less attractive to qualified human capital
goods?
because of its relatively modest wage levels. Milan offers slightly higher wages
than the Italian average, but the Italian average is below that of the EU15.
Milan also has a higher cost of living than other major EU cities, such as Paris,
Berlin and Madrid. Milan’s prestigious universities already fail to attract foreign
students compared with other European universities (the most attractive,
Bocconi University, only counts about 4% of foreign students), which could
presage further drags in the regional innovation dynamics.
Developing Milan into a high value-added, conception-oriented and
knowledge-intensive service hub requires immediate action to restore the
region’s connectivity and liveability. Such factors constitute key sources of
growth, both exogenous (by attracting knowledge workers) and endogenous
(by enhancing internal exchanges of knowledge). Exploiting synergies and
complementarities between the manufacturing area and the service-oriented
core requires adequate services for mobility to facilitate interaction and thus
the production and diffusion of innovation, as well as to meet demand from an
extended market for services.
A close scrutiny of the erratic transport framework indicates that little can be
solved without reforming governance mechanisms. Infrastructure has converged
in the core of the city while suburban connections and suburb-to-suburb
connections have remained limited or saturated. Blurred responsibilities across
levels of government, financial limits and political divergence have aggravated
the investment deadlocks. Experiments have been carried out on co-operative
arrangements to introduce an integrated fare system, such as the Milan Area
Integrated Fare System between the municipal Milan Transport Authority and a
few other municipal authorities, but they have covered only part of the mobility
needs in the region. Intergovernmental agreements that could have helped
resolve the transport challenge via joint planning and financing of infrastructure
have rarely materialised, although other policy issues have met promising
bottom-up collaboration responses. For example, the province, four municipalities
in the north of the province and various economic actors established a local
development agency in charge of brownfield restoration, which was renamed
Milano Metropoli in 2005 with an enlarged mandate.
Since the mid-1960s, Milan has reflected on possible governance arrangements
aimed at keeping pace with and lending support to its economic expansion. The
debate culminated in a proposal to convert the province into a città metropolitana
(“metropolitan city”), under a 1990 law which offered regions the possibility
to create a new subnational layer of government accumulating provincial
and supramunicipal responsibilities. But this proposal was never put in place
due to intergovernmental dissension and lack of incentives. An alternative
option would be to create an autonomous transport authority, which could be
coupled with or merged into a multi-purpose metropolitan co-ordinating body
if one were later established. Considering that the Italian Constitution already
recognises “metropolitan cities” as a subnational level, further progress could
be achieved through a national policy for metropolitan areas. ■
6 ■ © OECD 2006
Policy Brief OECD TERRITORIAL REVIEWS: MILAN, ITALY
Towards a Milan
Overall, Milan needs to produce a new vision for its future. This vision should
be able to catalyse the region’s key actors, for example through a branding
“metropolitan
strategy promoting Milan both internally and externally. Flagship projects are
community”?
an essential factor in building such a strategy. Although the region nurtures
a wide variety of highly-skilled creative experts, their mutual disconnection
dribbles their talent away while other cities have understood how to renew
themselves (like Turin with the 2006 Winter Olympic Games or Bilbao with the
Guggenheim cultural project). Gathering the region’s existing brainpower into a
“think tank” could help Milan design a facelift strategy and catalyst projects to
build a creative and stimulating environment. The province’s ongoing “Strategic
Project” called “Città di Città” has launched a call for innovative proposals and
actions. Building on this momentum, Milan could perpetuate a brainstorming
dynamics by establishing a top quality incubator of ideas bringing together
its best professionals and thinkers. Inspiration could be drawn from other
OECD cities such as Barcelona that revamped their area through ambitious
modernisation projects.
Milan’s outstanding projects could hardly materialise without political backup.
Milan’s proposed vision (an innovative and attractive service hub) and the practical
tools to implement this vision (e.g., transportation and housing) both require
intergovernmental collaboration mechanisms and adequate financial resources.
Milan could exploit the new latitude and additional fiscal resources offered by the
recent decentralisation reforms to support its competitiveness roadmap. Based on
the educative process initiated by a co-operative experience over transport issues
for example, the region could build a Milan “metropolitan community”. Its biggest
merit would be to bring together isolated actors and incrementally instil a culture of
trust while developing a sense of collective ownership and the desire to join forces
in order to accomplish common aspirations. However, considering the institutional
fragmentation and the particular struggle in reaching a consensus in the Milan
area, the national government will need to play a proactive role by helping to
enforce appropriate mechanisms and ensuring adequate financial resources for the
governance of metropolitan areas.
Milan remains one of the top-ranked OECD metropolitan regions but could
well run out of steam. In the face of emerging economies with a durable supply
of low-cost labour and aggressive potential in light industries, investors and
consumers will expect Milan to measure up to its historic image of industrial
forerunner and creative vanguard. Failure to uphold the innovation process
and to reverse the deterioration of its attractiveness could prove costly. With
a strong impetus from the national government, co-operative governance
arrangements could support deeper synergies and the region’s conversion into
the powerful pulse of a circuit with regional and national spillovers. Milan’s
assets could then be fully exploited to reinvigorate Italy’s economy in the
international arena. The current constraint is that metropolitan governance
reforms cannot afford to be further delayed. ■
For further
For further information on the OECD Territorial Review of Milan and the series of
information
OECD Territorial Reviews on metropolitan regions, please contact
Soo-Jin Kim, e-mail: soo-jin.kim@oecd.org or
Raffaele Trapasso, e-mail: raffaele.trapasso@oecd.org.
© OECD 2006 ■ 7
The OECD Policy Briefs are available on the OECD’s Internet site:
www.oecd.org/publications/Policybriefs
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
For further reading
OECD (2001), OECD Territorial Reviews: Italy, ISBN 92-64-19342-1, € 37, 180 p.
OECD (2005), OECD Economic Surveys: Italy, ISBN 92-64-01032-7, € 29, 196 p.
OECD (2005), OECD Regions at a Glance, ISBN 92-64-01863-8, € 40, 249 p.
OECD (2006), Competitive Cities in a Global Economy, ISBN 92-64-02709-2, € 47,
307 p.
www.oecd.org/gov/urbandevelopment
OECD publications can be purchased from our online bookshop:
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